Relevant and even prescient commentary on news, politics and the economy.

Why Economists Don’t Know How to Think about Wealth (or Profits)

By Steve Roth    (re posted)

Why Economists Don’t Know How to Think about Wealth (or Profits)

Until 2006, they quite literally weren’t playing with a full (accounting) deck. Most still aren’t

In the next evolution of economics taking shape around us and among us, perhaps no school has been so transformational over recent decades as a loose, worldwide group best described as “accounting-based” economists. Modern Monetary Theory (MMT), with its central tenet of “stock-flow consistency” (or stock-flow coherence) is at the center and forefront of this group.

These accounting-based economists more than any others managed to accurately predict our recent Global Great Whatever. And Wynne Godley, rather the pater familias of MMT, predicted the current Euro crisis in amazingly precise and accurate detail — in 1992, before the project was even launched. These economists’ nerdy and businesslike, green-eyeshade and steel-tipped-pen approach gives them unique and accurate insights into the state of the economy, and its likely futures.

Given these decades of focus on national accounts, it’s amazing that almost no economists are aware of a pretty remarkable fact:

Before 2006, the U. S. didn’t even have complete, stock-flow-consistent national accounts. That was the year that the BEA and the Fed released the Integrated Macroeconomic Accounts (IMAs; also presented as the “S” tables at the end of the Fed’s quarterly Z.1 report). They provided annual tables extending back to 1960, based on the latest international System of National Accounts (SNAs). Think: Generally Accepted Accounting Practices (GAAP), but for countries. We didn’t get quarterly tables in these accounts until 2012, only four years ago. And even today, we don’t have quarterly tables for subsectors of the financial sector.

In June 2013, the Z.1 report was renamed, from the Flow of Funds Accounts of the United States to the Financial Accounts of the United States, and the IMAs’ comprehensive data has been steadily more fully incorporated throughout the report — notably in the up-front Page i table, “Growth of Domestic Nonfinancial Debt,” which is now “Household Net Worth and Growth of Domestic Nonfinancial Debt.” See also Table B.1, “Net National Wealth,” which was added in the September 2015 release.

Comments (10) | |

A US economic Boom in 2018?

A US economic Boom in 2018?

For the last several years, I have tried to identify several graphs that most bear watching over the ensuing 12 months. This year, in addition to watching bond yields like everybody else, the data that most bears watching, it seems to me, can be summed up in the question: Is the US economy about to enter a Boom?

The recent economic news has almost all been good. In particular the unemployment rate has dropped as low as 4%. Meanwhile, the GOP certaionly believes — I most certainly don’t — that the recent tax changes are going to unleash a torrent of Capex spending and wage increases (as opposed to mergers, acquisitions, stock buybacks and executive pay bonanzas).

So, is the economy on the verge of firing on all cylinders?

There is no standard definition of a Boom. But since I am a fossil, in my lifetime I have experienced two times when it certainly felt like the economy was working extremely well and on a very broad basis: the 1960s and the late 1990s tech era.  The “good times” feeling of both eras was palpable. Employment was rampant and average people felt that their situations were going well.
What distinguished those to eras from all the other economic expansions?  I found five markers that stand out, and two that, oddly, didn’t.

Comments (16) | |

Congratulations to Kim Kardashian

From the World Economic Forum:

Kim Kardashian is an unlikely champion of statistics, but a tweet from the reality TV star in January 2017 contained a startling figure that has been named International Statistic of the Year.

She shared a table showing a range of violent or unexpected ways people meet their deaths annually in the United States. Kardashian’s aim was to highlight how many more Americans are killed by fellow citizens with guns, than by terrorists.

Tags: , , , , Comments (11) | |

“I so much despise a man who blows his own horn, that I go to the other extreme.”

This column was written February 16, 2016 by Jeff Jacoby of The Boston Globe and is entitled; “The man who didn’t want to be president.” It was referenced in another column by Jeff Jacoby called “The Great I Am“. After hearing Trump’s “Like, being really smart” and a “stable genius” remarks, this column “kind of fits” in reply. I would hope our Democrat candidate going into 2018 is of the same ilk for personality as this president.

NEARLY 1,000 days stretch between this Presidents’ Day and the next presidential election. Yet already it is impossible to escape the maneuvers, machinations, and media coverage of men and women so consumed with winning the highest office in the land that the lust for power all but oozes from their pores. For as long as most of us can remember, the obsessive quest for the presidency has been an indelible feature of American politics. Try to envision successful candidates for the White House who don’t have that “fire in the belly”: candidates prepared to accept the job if it seeks them out, but not driven by such insatiable ambition for it that everything else pales by comparison. It would be easier to envision a team of unicorns.

And yet America once had such a president. He was James A. Garfield of Ohio, a remarkable individual who rose from grinding poverty to the presidency of the United States without ever thrusting himself forward as a candidate for election to anything. It is a shame that Americans don’t know more about this gifted yet modest leader, as they doubtless would had he not been shot by an assassin just four months after becoming president.

On the eve of Garfield’s inauguration as the nation’s 20th chief executive, he told a group of old friends: “This honor comes to me unsought. I have never had the presidential fever, not even for a day.”

It was true. At every step of his political career, Garfield had to be urged to serve for the good of the country. He was first elected to Congress during the Civil War in 1862, while he was on active duty as a major general in the Union Army. The 31-year-old Garfield, a Republican and ardent abolitionist, “receiv[ed] nearly twice as many votes as his opponent, although he had done nothing to promote his candidacy,” writes Candice Millard in “Destiny of the Republic,” her 2011 history of Garfield’s election and tragic death. He didn’t take his congressional seat for another year — and then only because President Lincoln pressed him to do so. “I have resigned my place in the army and have taken my seat in Congress,” Garfield wrote in a letter home. “I did this with regret . . . [b]ut the President told me he dared not risk a single vote in the House.”

A competent lawmaker with a reputation for conciliation, Garfield served nine terms in the House, before being elected to the US Senate in 1880. It was as Ohio’s senator-elect that he arrived that June at the Republican National Convention in Chicago. He had come to serve as floor manager for Treasury Secretary (and fellow Ohioan) John Sherman in what was expected to be a three-way fight for the GOP nomination. The other leading contenders were former president Ulysses S. Grant and US Senator James G. Blaine of Maine.

But none of the three could win the 379 votes needed for nomination. As the convention remained deadlocked through ballot after ballot, some delegates began floating Garfield’s name as a compromise. On the 34th ballot, after a day and a half of voting, 17 votes were unexpectedly cast for Garfield. Dumbfounded, he rose to protest, objecting vehemently to any effort to nominate him.

“The announcement contains votes for me,” said Garfield, who had remained loyal to Sherman. “No man has a right, without the consent of the person voted for, to announce that person’s name and vote for him in this convention. Such consent I have not given—”

Before he could finish, the convention chairman gaveled him out of order. The polling continued. On the 35th ballot, there were 50 votes for Garfield. By the 36th, with even Sherman throwing his support to his ally, it was all over. Garfield was nominated with 399 votes. As the convention erupted in cheers and song, a “shocked and sickened” Garfield was beset by well-wishers. To one delegate’s congratulations, he replied: “I am very sorry that this has become necessary.”

Five months later, he was elected president. On March 4, 1881, he was sworn in, and delivered an inaugural address passionate in its emphasis on the rights of freed blacks. “Former slaves in the crowd openly wept,” Millard recounts. Many more Americans wept six months later, when Garfield died of the gunshot wound he had received on July 2, 1881.

“I suppose I am morbidly sensitive about any reference to my own achievements,” Garfield once acknowledged. “I so much despise a man who blows his own horn, that I go to the other extreme.”

Not many presidents have been more suited for high office than this admirable man who never lusted for power. Would that his like were in the mix for 2016.

Tags: , , Comments (10) | |

How Trump Killed The Anti-Government Protests In Iran

How Trump Killed The Anti-Government Protests In Iran

By very strongly and publicly supporting them and dragging the matter to the UN Security Council   Of course, his supporters have been praising his “strong action” in comparison with Obama’s quiet approach to the 2009 demonstrations, meant to reduce accusations of the demonstraters being US pawns.  Those demos went on a long time with large numbers eventually killed.  In this case, Trump has made the government’s case, and the demos seem to have all but stopped since he took his strong tweeting “action.”

As it is, maybe he did them a favor as clearly the government has been prepared to crack down. Only 20 and one security person) this time.  His strong action has reduced the ultimate bloodshed.

Barkley Rosser

Comments (15) | |

“In the Beginning…Was the Unit of Account” – Twelve Myths About Money

by Steven Roth

“In the Beginning…Was the Unit of Account” – Twelve Myths About Money

November 19th, 2017

Jan Kregel presented a great dinner speech at the recent Modern Monetary Theory Conference, touching on some of the fundamental ways we think about money and economics. (Sorry, no recording or transcript available.) I had a brief conversation with him afterwards, and we followed up with a few emails.

The quotation in the title of this post is condensed from the final line of one of his emails — a line that made me laugh out loud:

“So I guess we start from that — in the beginning was the word, and the word was the unit of account?”

Okay, yes: money-dweeb humor. But the implications are kind of profound.

The Word. LogosIndeed. I’ve written about this before — how writing in its earliest forms emerged from tally sheets, accounting. Even, that its emergence was the first step on the road to outsourcing our memory onto iPhones, maybe even (only somewhat tongue in cheek) causing human brains to shrink over millennia.

Jan’s great line, and our conversations, prompt me to set down some thoughts on this ever-vexed subject. Herewith, twelve widespread usages and conceptions that, in my experience, tie our money discussions in knots. Please assume that anything you don’t like here is mine, not Jan’s, and apologies to those who have heard some of this from me before.

(A proleptic response to an inevitable digression: I’m assuming a closed national or world economy for simplicity. The “rest of world” sector, and the exchange rate with Martian currency, are not considered.)

#1. Money was invented around 700 BCE. No. That’s when coins were invented — handy physical tokens making it easy to transfer assets from one person’s (implicit) balance sheet to another’s. Money existed on something like balance sheets — tallies of who owns what and who owes what — long before that; those tallies go back thousands or tens of thousands of years. Mentions of monetary values in written documents — designated in staters, drachms, whatever — were widespread long before anyone thought of using coins for asset transfers.

The earliest coins, by the way, may well have been badges of honors and offices issued by religious authorities. Somehow people started exchanging them, and voila: physical currency. This had little or nothing to do with butchers and bakers or convenient time-shifting of purchases. That’s a made-up armchair myth (though the convenience benefit is real). Wampum, likewise, wasn’t used for trade exchange until Europeans captured that “money” system and transformed it.

#2. Money is a “medium of account.” (Whatever “medium” means in that phrase…) Money was invented when some clever tally-keeper, totting up cows and horses and bags of grain, invented the arbitrary unit of account — a unit that allows those heterogenous goods to be tallied on a single sheet, in a common unit of value. We find price lists of assorted goods on some of the earliest Sumerian tablets, for instance, and price lists can’t exist without a unit of account. It’s hard to know, but it seems like this clever technology might have been invented multiple times over the millennia.

Comments (2) | |

The Pro and the Con of Obamacare

I’ve been trying to learn a bit more about PPACA (aka, Obamacare) and its effects. It hasn’t been something that has interested me a great deal until the last week or so, so I am approaching this from a position of ignorance. But I have been reading through as much material as I can find.

Basically, I think the biggest factor in favor of PPACA is the big reduction in the number of uninsured. 14.7% of Americans were uninsured in 2008, the last year before Mr. Obama became President. As shown in the graph below, by 2016, that figure had dropped to 9%. (All figures from table 1.1.b in this CDC report.)

(Click to embiggen)

In terms of actual numbers of people – according table table 1.1.a of the aforementioned report – we went from 43.8 million uninsured people to 28.6 million uninsured people in 2016. This was a huge increase in the number of people with health insurance, and a tremendous benefit for a lot of people.

The biggest factor against PPACA is its cost. According to the Department of Health and Human Services:

Comparing the average premiums found in 2013 MLR data and 2017 CMS MIDAS data shows average exchange premiums were 105% higher in the 39 states using Healthcare.gov in 2017 than average individual market premiums in 2013. Average monthly premiums increased from $232 in 2013 to $476 in 2017, and 62% of those states had 2017 exchange premiums at least double the 2013 average.

As a backdrop to all of this, two additional things are worth noting. The US was already an outlier when it came to healthcare spending as a share of GDP even before the Obamacare provisions kicked in. That despite the fact that many countries that spend a lot less than we do already had something like universal coverage by then.

And speaking of universal coverage and costs, Mr. Obama, in his speech accepting the Democratic nomination for President of the United States in 2008, said this:

Now is the time to finally keep the promise of affordable, accessible health care for every single American. If you have health care, my plan will lower your premiums.

Of course, this didn’t quite happen… more Americans have access to health care, though there are still over 28 million uninsured. And of course, for quite a few (just about all?) of us, this promise of lowered premiums hasn’t happened. Quite the opposite, in fact.

So what is the end state? Why does the system we have fail so many people? How can we make it better?

 

Update…  The graph at the bottom of this article from the Washington Post is quite informative.

Tags: , , Comments (14) | |

Where is the money going?

Devin Smioth at New Economic Perspective points us to ‘where does the money go?”:

After President Trump signed the GOP tax plan into law, some of the bill’s corporate beneficiaries have offered workers minor bonuses. But NEP’s Bill Black says they’re keeping most of the money for themselves — and starting a new global race to the bottom for corporate taxes. You can view here with a transcript.

Figure 1

Comments (3) | |

Support the Census

Support the Census

The alarm has been sounded that Trump’s census apparatchiks are planning to include a citizenship question in the short form that will be used to generate the full count in 2020.  This count, mandated by the constitution and conducted every ten years, is the basis for voting district apportionment and formulas for allocating government services.  Since the first census was taken in 1790 the government has enumerated all residents, citizens or not, and it hasn’t asked about legal status in decades.  It’s not difficult to foresee that such a question would lead to a substantial undercount of Hispanics, especially in the current climate of immigration hysteria.  That’s almost certainly the intent of the Trump plan, not an oversight.

Fortunately, there’s a way to fight this scheme through direct action: massive nonparticipation unless the question is withdrawn.  Refusing to take part in the census is theoretically illegal, but since millions of residents fail to return their form by mail, prosecution is a rare event.  The mail response rate for the 2010 census was about 76%, which means almost a quarter of the potential recipients didn’t make life easy for the Census Bureau.  For them to be counted, enumerators had to knock on their doors and complete the process in person.  These home visits are the biggest expense the Bureau faces to do its job.

Noncooperation could take one of two forms.  The least demanding would be a massive refusal to respond by mail.  If nonresponse could be increased by even just another 10-20% it could substantially increase the cost and decrease the reliability of the entire operation.  Or, if they could stick together, noncooperators could refuse altogether—although I suspect a few highly publicized prosecutions and giant fines would cause a break in the ranks.  (What would happen if crowds blocked enumerators’ access to houses the way eviction agents have been blocked during foreclosure protests?)

The rationale behind direct action would be simple: count us all or not at all.  There’s even an obvious name for a steering group to organize the action, Common Census.  Unless there was a plan to reimburse activists slapped with fines, it would take only a little funding to support the necessary publicity, and the demand that there be no question asking about citizenship is unambiguous.  I see no reason why “count us in or count me out” wouldn’t be a fight we could win.

Comments (22) | |